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by Helen Lamanna,

Here are this week’s reading diversions for your personal enlightenment. Have an awesome weekend!

10 Things You Do NOT Need to Be Happier in Life

Saying yes to happiness means learning to say no to the desires that drain you.

5 Scientifically Proven Ways to be Happier at Work | Reader’s Digest

If you think you have to love, love, love your job to be happy at work, consider this research that shows the impact your daily choices and habits have on happiness.

Is Cancer Genetic? Family History and Cancer Risk | Men’s Health

If cancer hangs from the branches of your family tree, you might be at a greater risk of developing it yourself. But here’s how you can fight back

8 ways you don’t realise you’re putting your eyes at risk – Women’s Health

‘Green leafy vegetables are really good for the eyes. The best is kale, and the old stories about carrots are true, carrots are good for the eyes, and also in nutritional terms, oily fish.

Bridge Keeps Your Brain Healthy – Improve Memory – AARP

Playing your cards right can help keep you sharp long after retirement

Supplements, Vitamins to Take in Your 50s, 60s and 70s – AARP

Get an edge over osteoporosis, heart disease, even cancer, with the right vitamins

Coffee intake linked to reduced risk of MS Medical News Today

It is estimated that more than 2.3 million people worldwide have multiple sclerosis (MS), a chronic disease of the central nervous system – the brain, spinal cord and optic nerves.

Health Benefits Of Warm Water: 6 Ways Drinking Warm Water Can Heal Your Body

Drinking a cup of warm water in the morning can heal your body by aiding digestion and preventing premature aging.

Acid-Suppressing Medications Linked To Vitamin B12 Deficiency: Are You Low On B12?

People low on Vitamin B12 may experience weakness, anemia, or a loss of balance.

10 foods to boost your brainpower | BBC Good Food

Eating well is good for your mental as well as your physical health.

5 ways to keep your memory sharp – Harvard Health

The way you live, what you eat and drink, and how you treat your body affect your memory as well as your physical health and wellbeing. Here are five things you can do every day to keep mind and body sharp.

10 Ways Musical Training Boosts Brain Power | Psychology Today

Neuroscience offers more proof that musical training is good for your brain.

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by Adam Grimes

So the stock market sold off hard yesterday. If you were living under a big enough rock you might have missed it, but now the doom and gloomers, the technicians pointing at broken “levels” and trendlines, and the permabears will probably be saturating the media for a few days. This is ok, and it’s even healthy for the market, but we can do better than soundbites and opinions. History–market history–can give us some idea what might really be coming in the future.

Nasdaq composite with volatility-adjusted daily returns. Large down days marked.

The selloff was large, but not huge. Looking at a price chart, yesterday’s decline might seem scary, but we should always consider market moves in context of that market’s recent volatility; on the chart above, that measure is plotted below the price chart. (We call this SigmaSpikes in the research I write for Waverly Advisors, and it’s one of the main tools I use to look at every market we follow.) From this chart, we can see that this day stands out, but it certainly is not a disaster. Now, let’s look at what happens after a large down day like this:

Weekly returns for six months following -2.5 sigma down days

It’s one thing to talk about statistics, but the chart above lets us see market history in action. Each trace on the chart is what happens following a -2.5 sigma down day; the chart also flashes the average of those days in blue once the chart is complete. Watch it a few times through, and notice a few things:

  • Most of the lines pile up near the middle of the chart, but they seem to be leaning to the upside.
  • However, there are some very large “surprises”–both up and down.
  • A lot of the “bad surprises” come during the 2008 financial crisis. (Maybe this is not a relevant point.)
  • The overall average is slightly above zero meaning that…

Yes, stocks tend to bounce after large selloffs. Stocks snap back, or another way to same thing is that they mean-revert over moderately long timeframes. If you’re a tables and numbers kind of person, here’s the same information in a table format:

nasdaq big day table

Here we can see that there is (very) slightly positive outperformance over all time periods measured. Surprisingly, volatility has not been higher following large declines, meaning that we have no reason to expect any more volatile trading in the future. Bottom line: stocks tend to snap back after a selloff. This time could, of course, be different, but we’re in a bull market and smart bets, at least on longer timeframes, are going to be placed with that trend, not against it.


Copyright © Adam Grimes

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by Econompic Data

Josh Brown (i.e. The Reformed Broker) has a nice piece questioning the merit of unconstrained bond funds. Embedded within that article was this gem:

In fact, since 1976, U.S. stocks and bonds have not declined at the same time for more than two consecutive months. Over the last 60 years, there’s only been one year in which both stocks and bonds posted an annual decline (1969).

You can actually make a bolder statement than that given that the Barclays US Aggregate Index’ inception wasn’t until 1976. The S&P 500 and “Agg” have never declined at the same time for more than two consecutive months. As surprising to me was that stocks and bonds on a stand-alone basis have only declined more than two straights months about 5% of the time (i.e. once every year and eights months).

So if rates rise from here (negatively impacting bonds), how will stocks perform? I’m glad you asked.

Jeremy Schwartz (@JeremyDSchwartz) outlined a few months back during a back and forth that stocks (especially small cap stocks) have historically performed very well during periods of rising rates… going back all the way to the 1950’s.

Taking that one step further, the below breaks out performance by small, mid, large across value and growth during periods of rising rates since 1994 (I can only get daily Russell data going back 20 years). In this case, rising rates is defined as periods where the 10 year Treasury rose more than 100 bps without a 50 bp decline (there have been 9 such periods since 1994). Not only have stocks broadly performed exceptionally well in these periods (with small caps outperforming), growth stocks have performed even better (the less “bond-like” the stocks, the better the performance in rising rate environments).

For those fearful of a sell-off in rates… what to do? Well, if history holds, simply hold a balanced portfolio consisting of stocks and bonds. Want to be bolder? Tilt slightly towards small and/or growth. As for unconstrained bonds… let investment managers fleece you somewhere else.

Source: Russell, S&P, Barclays


Copyright © Econompic Data

By ZeroHedge In “How The ECB Is Distorting Euro Money Markets” we summarized Barclays take on the effects of ECB QE as follows: “short-end core paper will trade below -0.20%, extreme supply/demand imbalances will cause general collateral rates to trade through the depo rate, money market fund yields will turn decisively negative testing investor patience,…

Earlier this week, we got further evidence of just how quickly China’s economy is slowing down (hard landing anyone?) when the March manufacturing PMI printed in contraction territory, the employment sub index dove to Lehman levels, and rail freight fell 9%. While disconcerting, this isn’t all that surprising given that if one looks at what really matters (i.e electricity usage, rail freight volume, and credit growth), it’s pretty clear that China’s economy isn’t expanding at anywhere near the targeted 7% and hasn’t been for quite some time: 

And the weakness may well persist as PM Li wages “war” on a familiar adversary: smog. Beijing is set to close all major coal power plants by 2016 including an 845-megawatt plant owned by China Huaneng Group. They’ll be replaced by natural gas facilities that will generate two-and-a-half times the power. As Bloomberg reports, this should have a fairly dramatic effect on air quality: 

Shutting all the major coal power plants in the city, equivalent to reducing annual coal use by 9.2 million metric tons, is estimated to cut carbon emissions of about 30 million tons, said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd., a London-based research company with a focus on China.

It may also have a noticeable effect on economic output. Here’s Deutsche Bank: 

Almost universal from companies is a lack of understanding of the public reported GDP numbers and a lack of correlation to what they see. Many names see the actual GDP rate in China for the past 3 years as being more like the 5-6% level and that 2015 is likely to be at a similar year. Interestingly most feel that the region’s ability to achieve anything more than this (i.e. 8+%) is severely constrained for the next few years by the much needed pollution control.


Mentioning pollution and corruption in China is not new; however, the sharp increase in state focus on both issues is clear. The slowing of the economy may be the price of fixing these issues…

The costs to China’s sputtering economic growth machine aren’t likely to be small either. In fact, Bloomberg estimates suggest industrial output may have to be slashed by a fifth in order for Beijing to hit its own pollution targets and by up to 40% if China wants its citizens to be able to breathe the same air as the rest of the world: 

How big is the hit? China's government is targeting a PM2.5 level of 35 micrograms per cubic meter. In 2014, the level was about 60. Our estimate suggests that without any changes in industrial structure or other abatement efforts, getting there would require a reduction in industrial output of as much as 20 percent.


Getting down to the international clean air standard would be even tougher. The level recommended by the World Health Organization is 10 micrograms per cubic meter. Absent other measures, that would mean taking China’s industrial output down 40 percent.

*  *  *

So there you have it. Expect the Chinese economy to decelerate further going forward and expect Beijing to blame it on the smog.

By ZeroHedge China’s economy is slowing, and the debate is raging over whether the country is headed for an abrupt hard landing or whether the slowdown will stabilize into a soft landing that may already be underway. However it plays out, Schwab’s Jeff Kleintop notes, one thing is clear: A return to the double-digit growth…

Whether due to contagion from the surge in US Treasury yields or a double whammy of weak household spending and Retail Trade data indicating that Abenomics is an utter failure is unclear, but yields across the entire JGB complex are spiking by the most in over 2 years. 10Y yields are up almost 9bps (not much you say) except that is from 32bps to 41bps!! 2Y and 5Y JGB yields have roundtripped from last week's Fed-driven plunge. Is the BoJ/GPIF losing control of the largest and now most illiquid bond market in the world?



This is the biggest yield spike since the Taper Tantrum...


And stocks are spiking...


As the Nikkei has gained 4000 more points that the Dow in the last 6 months...


Chart: Bloomberg

The last few days have been almost the worst for the Saudi Arabian stock market in 4 years. Between low oil prices, a new King's big social welfare budget, and now "war," it appears this year's dead cat bounce from last year's exuberance is dying rather rapidly. However, what is perhaps even more troublesome for The Kingdom than the net worth destruction and potential blowback from instigating war against the Houthis is the fact that this month saw the largest drop in foreign curreny reserves on record (over 15 years) for the Arab nation... somewhat suggesting capital flight on a scale never seen before in one of the richest states in the world.


Saudi stocks plunging...


as foreign currency reserves drop by the most on record (in over 15 years)...


An almost $18bn plunge - the most ever - dragging foreign currency reserves back to the lowest in over 3 years...

and the very recent weakness in the Rial (as war began) suggests the picture will get worse...



Charts: Bloomberg

By ZeroHedge If there is one chart that most clearly captures the unsustainable US home price appreciation bubble, it is the following which was released overnight from RealtyTrac: it is based on an analysis of wage growth and home price appreciation during the U.S. housing recovery of the past two years and has found home…

China’s economy is slowing, and the debate is raging over whether the country is headed for an abrupt hard landing or whether the slowdown will stabilize into a soft landing that may already be underway. However it plays out, Schwab's Jeff Kleintop notes, one thing is clear: A return to the double-digit growth rates of years past seems unlikely. Demographics are destiny.. and China faces two unstoppable trajectories.

Via Schwab Insights,

China’s rise largely stemmed from a surplus of laborers willing to work for lower wages than the competition overseas. This allowed Chinese factories to turn out goods more cheaply than was possible elsewhere.

China isn’t the first country rise using this model. In the 1970s and 1980s, Japan relied on low-cost, export-driven economic growth to elevate itself to the second-largest economy in the world. However, Japan eventually had to change gears as the country’s birthrate declined and the number of workers fell.

China now faces a similar trajectory, as seen in the chart above. Its working-age population—defined as those between ages 15 and 64—is peaking and is set to decline in the years ahead.


China’s demographic problem has been exacerbated by the country’s “one-child” policy—a system introduced in the late 1970s that prohibits many couples from having more than one child. Although the policy has recently been relaxed slightly, according to the Chinese agency charged with population planning, the one-child policy has prevented more than 400 million births since 1979.


To put that number in perspective, the entire U.S. labor force amounts to about 150 million workers. You can see how demographic trends in those two countries might play out in the chart above.

*  *  *

That's a big demographic hole to fill with QE-lite...

In “How The ECB Is Distorting Euro Money Markets” we summarized Barclays take on the effects of ECB QE as follows: “short-end core paper will trade below -0.20%, extreme supply/demand imbalances will cause general collateral rates to trade through the depo rate, money market fund yields will turn decisively negative testing investor patience, and central banks had better make good on promises to make some of their inventory available for lending or risk impairing the functioning of the repo market (never a good idea).” A little over two weeks into the PSPP and sure enough, signs are already beginning to show that the ECB is effectively breaking the market. Last week, we got this via Reuters

The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB's asset-purchase scheme, which analysts say could clog up Europe's financial system.


Uncertainty over how the European Central Bank will counter the scarcity of top-rated debt could further shrink repo markets -- a source of funding that is essential to the smooth running of bond markets...


One broker said every German government bond eligible for ECB purchase was now trading 'special', meaning exceptional demand had made it more expensive to borrow for three months than general collateral.

Then today, this from Mizuho’s Peter Chatwell via Bloomberg: 

Some bonds in German market are trading special in repo, Peter Chatwell, strategist at Mizuho, writes in client note.


Picture for relative-value trades has deteriorated, with the number of bonds that trade rich vs fitted curve becoming even richer.


As list of DBR specials grows, relative value in Germany may become dysfunctional until Eurosystem lends out bond holdings under QE.

Recall that we've seen a similar dynamic in the US of late with the two-year trading negative in repo. To demonstrate the dramatic effect PSPP purchases are having on the market (and by extension, how important it is for the ECB to get the securities lending operation right), consider the following from JPM (this is from one week into the program): 

The first issue of collateral shortage can be seen in the collapse of GC repo rates to negative territory since the beginning of last week for terms of greater than 3 months. 1yr Germany has been trading at close to -30bp; i.e. one can currently fund purchases of Bunds via the term repo market and achieve positive carry by even buying Bunds with yields between -20bp to -30bp. We note that this expensiveness in term repos shows how unwilling Bund holders are to depart from their collateral for more than a few days or weeks.

And in terms of liquidity — and remember here that liquidity means the degree to which you can trade without impacting prices too much, or as Howard Marks recently put it, “the key criterion isn’t “can you sell it?”, it’s “can you sell it at a price equal or close to the last price?” — the ECB pretty clearly had a rather outsized negative effect very early on. Here’s JPM again: the sharp decrease in Bund liquidity as our market depth metric; i.e. the ability to transact in size without impacting market prices too much, collapsed this week . We measure market depth by averaging the size of the three best bids and offers each day for key markets. Figure 2 shows two such measures, for 10-year cash Treasuries (market depth measured in $mn) and German Bund futures (market depth measured in number of contracts). While both UST and Bund market depth have been trending lower in recent months and while the former moved recently below the Oct 15th low, what was striking this week was the divergence between a modest increase in UST market depth vs. an abrupt decline in Bund market depth. We note this development effectively challenges the market neutrality condition of the ECB from the first week of purchases already! 

JPM goes on to explain — as they have before — that QE really just replaces one form of collateral with another and “shortage” isn’t really the appropriate term but rather “scarcity,” as “scarcity” implies that one form of collateral (in this case EGBs) has simply been made more expensive vis-à-vis another form of collateral (in this case cash). However, because cash isn’t as efficient as a form of collateral as the bonds it's replacing, the ECB has in fact engineered a shortage: 

However, this assessment is complicated by reduced usage and efficiency of cash collateral in recent years. In particular, usage of government bond collateral has increased at the expense of cash collateral by both banks and investors… 


Banks are responding positively to reduced appetite for cash collateral by the buy side as this also helps banks to increase the efficiency of their own collateral management processes via re -hypothecation of security collateral and via consolidating and optimizing collateral across OTC derivatives, securities lending and repos to meet more onerous regulatory requirements. Re -hypothecation or re -use rate of security collateral has decreased post the Lehman crisis , but at around x2 currently it makes bond collateral more efficient than cash collateral…

...and so…

In a way an argument can be made … that the ECB not only creates scarcity of one form of collateral vs . another but that it also creates shortage of collateral by replacing high efficiency collateral with low efficiency collateral. 

Here’s Barclays summing it all up: 

Importantly, the shortage of government bonds would reduce the liquidity of the repo as well as cash markets. In the legal act of its public sector purchase programme (PSPP) the ECB stated that securities purchased under the PSPP are eligible for securities lending activity, including repos. This will be very important, in our view, to mitigate any negative implications of QE purchases on the repo market’s functioning. 

And here’s Soc Gen citing liquidity as a possible reason for EU EGB relative underperformance (sans-bunds) vis-a-vis SSAs : 

Our conclusion is that, once again, the market is responding positively to aggressive monetary policy but remains somewhat distorted due to the lack of structural adjustments. The underperformance of EU bonds – unchanged since the start of PSPP, while other issuers’ curves have flattened – may be partly explained by the lack of liquidity.

Soc Gen sees large scale asset purchases effectively limiting euro issuance in the SSA space and squeezing investors into higher-yielding issues:

Some issuers have advanced their programmes to well above 25%... However, what is very significant is the much smaller share of EUR issuance...The slowdown in the pace of new EUR issuance could therefore be the result of a pause after the strong start to the year, in combination with the shift to foreign currencies. However, the lack of interest from EUR-denominated accounts is no doubt linked to the implementation of the PSPP. By squeezing spreads so much, the ECB is crowding investors out of the sector.

Moving now to corporate credit and going a bit further in an effort to put the pieces together and paint a comprehensive picture, consider the effects all of the above are having outside of the market for EGBs and SSAs. From Barclays: 

The ECB QE has caused a dramatic flattening of government bond curves and caused Bunds to trade with negative yields past the 7y maturity. There is now €1.9trn of negative-yielding government debt in Europe (almost 20% of the outstanding bonds) and this has a profound impact on investor behaviour. In fact, there is strong evidence that EGB investors are already heavily involved in short-end, highly rated corporate bond markets. From June 2014 to February 2015, short-dated, highly rated paper outperformed. We believe this reflects the investment constraints of bank treasury desks, which have responded to a lack of positive yielding collateral by taking more credit risk and more rates duration risk, but are unlikely to hold long-dated credit. This will lead to a persistent bid for this area of credit, capping shorter-dated, higher-rated credit in Europe. 


The implications of lower government bond yields generally and the influx of displaced EGB investors are already being felt in credit markets, with 95% of the IG-rated market (excluding subordinated debt) trading below 1.5% yield. 

Given that, we now need to consider everything we’ve said about illiquidity in the secondary market for corporate credit lately. Recall that reduced dealer inventories (as a result of new regulations) combined with high issuance (due to corporates looking to take advantage of record low borrowing costs) and in conjunction with investors’ hunt for yield (due to misguided monetary policies), have the potential to coalesce into a nightmare scenario, or, as we put it recently:

Thanks to new regulations ostensibly designed to, among other things, bolster capital cushions and keep the market safe from the perceived perils of prop trading, banks are more reluctant to facilitate trading. This comes at the absolute worst possible time. Borrowing costs are so low that the Fed is basically daring companies not to take advantage, so while issuance is high, secondary market liquidity is non-existent meaning, effectively, that the door to the theatre is getting smaller and smaller and if someone yells “fire,” getting out is going to prove decisively difficult.  

Here’s Barclays again, with their riff on the same narrative: 

What is unique to Europe is the influx of non-traditional credit investors directly into €IG (not via ETF or the like) and their behaviour. Where the motivation is primarily to ‘hide away’ from negative bund yields, anecdotal evidence suggests the focus is on buying bonds of ’large, stable’ companies, with little discrimination between issuers of that kind. The risk is that we have what could be called a ‘Tesco moment’ where one of these ‘large, stable’ companies runs into negative headlines. Significant selling from non-traditional credit investors could ensue, which could spread into other credits owned by this segment. With reduced dealer balance sheet, there could be few buyers of such paper (in particular given tight valuations) and the spread widening could be disproportionate. 

...and Howard Marks simplifying things:

Usually, just as a holder’s desire to sell an asset increases (because he has become afraid to hold it), his ability to sell it decreases (because everyone else has also become afraid to hold it). Thus (a) things tend to be liquid when you don’t need liquidity, and (b) just when you need liquidity most, it tends not to be there. 

*  *  *

Coming full circle, we can see that some of the strain here could be alleviated if the ECB is able to implement an effective securities lending program so that €1 trillion of in-demand collateral isn’t locked away where the repo market can’t access it. JPM’s suggestion is for euro area NCBs to utilize existing relationships with dealers to facilitate this, and for dealers to then relax collateral standards “to ease the pressure on one country’s GC repo levels,” and to allow cash for collateral, in effect reversing the effect of the ECB’s low efficiency for high efficiency swap. 

Earlier this month, we identified the reason why Chinese stocks have continued to rise in the face of overwhelming evidence that the country’s economy is decelerating quickly. While the first part of the 8-month run can be plausibly attributed to PSL, the furious buying that began in late November looks to be at least partly attributable to the fact that thanks to tighter regulations on lending outside the traditional banking system, China’s $2 trillion shadow banking complex needed somewhere to put cash to work and that somewhere turns out to be the giant bubble that is the SHCOMP. Here’s more: 

Because according to Reuters, it is precisely China's trust firms, with total assets of $2.2 trillion, and who together with Banker Acceptances comprise the bulk of China's shadow banking pipeline, and no longer able (or willing) to lend to China's small companies and individuals due to a spike in regulation, are shifting more cash into frothy capital markets and over-the-counter (OTC) instruments instead of loans.


In other words, instead of using their vast cash hoard of over $2 trillion to re-lend and stimulate China's economy, China's unregulated, shadow banking conduits are now directly buying stocks!

Shortly thereafter we highlighted the 7 main reasons for the Chinese stock ramp all of which boil down to one thing: liquidity. Here they are, courtesy of UBS:

With no significant change in China's macro or corporate fundamentals, the visible rebound in China's A-share market since November appears to have been largely liquidity driven. We think this, in turn, may have been fuelled by a number of factors including:

1. new funds flowing into the stock market from household saving, real estate, commodities and trust markets;

2. banks' bridge loans provided to investors who lost access to other high-yield shadow banking products as the result of tighter regulation;

3. the PBC's easing of liquidity conditions via a variety of "targeted easing" tools (e.g. MSL, PSL, etc.);

4. the official launch of Mutual Market Access (MMA) between the Hong Kong and Shanghai exchanges;

5. long-term expectations for SOE reform and A-shares entering the MSCI index next June;

6. increased use of leverage by retail investors via margin trading; and


7. market sentiment being boosted by expectations for further policy easing.

Meanwhile, February’s RRR cut failed to meaningfully lower China’s interbank rates, likely due to continued sizable capital outflows and significant liquidity withdrawals from China’s money markets by recent IPO applications.

Meanwhile, China’s securities regulator warned investors that not wanting to miss out on the next leg up is not a good investment strategy to follow, especially in a market as frothy as this one. Now, BNP is out with a note calling China’s equity bubble “a microcosm for the overall economy: unsustainable growth in leverage masking ever-deteriorating fundamentals and increasing future downside risks.” Here’s more: 

Against all odds, the best performing asset class on the planet over the last nine months or so has been Chinese equities…’s not the economy (as we’ve been saying for months)...

What underlies these extraordinary gains? It is certainly not economic fundamentals. Led by the accelerating real estate slump (China: It’s Only Just Begun), China’s GDP growth has steadily slowed with reported 2014 GDP growth of 7.4% the slowest in almost twenty years. A range of ‘hard’ economic indicators such as electricity production and rail cargo volumes suggest even slower growth. Our preferred ‘real, real’ GDP estimate flags that output growth could have been as low as c.4½% in 2014 (China: Fit as a Fiddle). While the usual data fog around the Lunar New Year partially clouds analysis, high frequency indicators that generate early estimates of GDP growth suggest that the growth has continued to slide in 2015Q1… must be liquidity….

By definition therefore equities’ stellar performance has been a function of liquidity driven multiple expansion. The P/E ratios for the Shanghai and Shenzhen markets have roughly doubled since August to c.19x and c.44x respectively. While still a long way short of the incredible highs of 70-80x reached during the 2006-2007 bubble, multiples are now rapidly approaching their post-GFC highs. One obvious source of fresh liquidity which could have powered equities’ bull-run is from the long-delayed introduction of the Hong KongShanghai ‘stock connect’ last November. The scheme, formerly known as ‘the through train’, allows two trading between the Shanghai A-share market and the Hang Seng. Two-way flows however have been relatively meagre. An initial aggregate quota of RMB300bn was set for northbound flows into Shanghai. So far only about a cumulative RMB125bn has flowed north, leaving RMB175bn of the aggregate quota unfilled. And northbound buy orders have in turn typically only accounted for around ¾% of the Shanghai market’s daily turnover…

...and it comes from a predictable place, leverage…

Far from a surge in external liquidity, an increasingly self-feeding domestic frenzy fuelled by leverage appears to be the key driver….Margin purchases have been running well ahead of redemptions ensuring that the outstanding stock of margin debt has ballooned by over RMB1 trillion since August; equivalent to more than 1% of GDP…

...and castles built on quicksand (i.e. margin debt) will likely collapse…

Margin purchases are now accounting for almost 20% of equities daily turnover which itself has soared to wholly unprecedented levels in another sign of self-feeding speculative frenzy. What happens next is clearly an ‘unknown-unknown’. By definition detached from fundamentals, speculative bubbles are inherently re-enforcing in the short-term and frequently last longer than expected. The longer they continue, however, the larger the eventual bursting. 


*  *  *

As a reminder: 

Submitted by Michael Snyder via The End of The American Dream blog,

Did you know that the Russians have a massive underground complex in the Ural mountains that has been estimated to be approximately 400 square miles in size?  In other words, it is roughly as big as the area inside the Washington D.C. beltway.  Back in the 1990s, the Clinton administration was deeply concerned about the construction of this enormous complex deep inside Yamantau mountain, but they could never seem to get any straight answers from the Russians.  The command center for this complex is rumored to be 3,000 feet directly straight down from the summit of this giant rock quartz mountain.  And of course U.S. military officials will admit that there are dozens of other similar sites throughout Russia, although most of them are thought to be quite a bit smaller.  But that is not all that the Russians have been up to.

For example, Russian television has reported that 5,000 new emergency nuclear bomb shelters were scheduled to have been completed in the city of Moscow alone by the end of 2012.  Most Americans don’t realize this, but the Russians have never stopped making preparations for nuclear war.  Meanwhile, the U.S. government has essentially done nothing to prepare our citizens for an attack.  The assumption seems to be that a nuclear attack will probably never happen, and that if it does it will probably mean the end of our civilization anyway.

Needless to say, the Russians are very secretive about their massive underground facility at Yamantau mountain, and no American has ever been inside.  The following is what Wikipedia has to say about it…

Large excavation projects have been observed by U.S. satellite imagery as recently as the late 1990s, during the time of Boris Yeltsin’s government after the fall of the Soviet Union. Two garrisons, Beloretsk-15 and Beloretsk-16, were built on top of the facility, and possibly a third, Alkino-2, as well, and became the closed town of Mezhgorye in 1995. They are said to house 30,000 workers each. Repeated U.S. questions have yielded several different responses from the Russian government regarding Mount Yamantaw. They have said it is a mining site, a repository for Russian treasures, a food storage area, and a bunker for leaders in case of nuclear war. Responding to questions regarding Yamantaw in 1996, Russia’s Defense Ministry stated: “The practice does not exist in the Defense Ministry of Russia of informing foreign mass media about facilities, whatever they are, that are under construction in the interests of strengthening the security of Russia.” Large rail lines serve the facility.

Back in 1996, the New York Times reported on the continuing construction of this site.  U.S. officials were quite puzzled that the Russians were continuing to build it even though the Cold War was supposedly over at that point…

In a secret project reminiscent of the chilliest days of the cold war, Russia is building a mammoth underground military complex in the Ural Mountains, Western officials and Russian witnesses say.


Hidden inside Yamantau mountain in the Beloretsk area of the southern Urals, the project involves the construction of a huge complex served by a railroad, a highway and thousands of workers.

Within the U.S. intelligence community, there was a tremendous amount of debate at that time regarding the purposes of this facility, but what everyone agreed on was that it was going to be absolutely massive…

A report in Sovetskaya Rossiya said the project involves construction of a railroad, a modern highway and towns for tens of thousands of workers and their families.


The complex is as big as the Washington area inside the Beltway,” said an American official familiar with intelligence reports.

A couple of years later, a top U.S. general said that he believed that the complex at Yamantau had “millions of square feet available for underground facilities”

In 1998, in a rare public comment, then-Commander of the U.S. Strategic Command (STRATCOM) Gen. Eugene Habinger, called Yamantau “a very large complex — we estimate that it has millions of square feet available for underground facilities. We don’t have a clue as to what they’re doing there.”


It is believed to be large enough to house 60,000 persons, with a special air filtration system designed to withstand a nuclear, chemical or biological attack. Enough food and water is believed to be stored at the site to sustain the entire underground population for months on end.

A few years after that, in 2003, there was an article in the Washington Post by Bruce G. Blair in which Yamantau was mentioned as a potential key target for U.S. nuclear war planners…

Die-hard [U.S.] nuclear war planners actually have their eyes on targets in Russia and China, including missile silos and leadership bunkers. For these planners, the Cold War never ended. Their top two candidates [i.e., targets] in Russia are located inside the Yamantau and Kosvinsky mountains in the central and southern Urals.


Both were huge construction projects begun in the late 1970s, when U.S. nuclear firepower took special aim at the Communist Party’s leadership complex.


Fearing a decapitating strike, the Soviets sent tens of thousands of workers to these remote sites, where U.S. spy satellites spotted them still toiling away in the late 1990s.

But the Russians have not just been building giant underground facilities deep in the Urals.

They have also been constructing thousands of new underground bomb shelters in major cities such as Moscow.

The following is an excerpt from an RT article in 2010…

Nearly 5,000 new emergency bomb shelters will be built in Moscow by 2012 to save people in case of potential attacks.


Moscow authorities say the measure is urgent as the shelters currently available in the city can house no more that half of its population.


In the last 20 years, the area of air-raid defense has been developed little, and the existing shelters have become outdated. Moreover, they are located mostly in the city center, which makes densely populated Moscow outskirts especially vulnerable in the event of a nuclear attack.


In order to resolve the issue, the city has given architects a task to construct a typical model of an easy-to-build shelter that will be located all over the city 10 to 15 meters underneath apartment blocks, shopping centers, sport complexes and parks, as in case of attack people will need to reach the shelters within a minute.

Of course all of this construction cost the Russians a lot of money.

One estimate put the cost at “anywhere from half a billion to a billion dollars”

Though the bunkers are supposed to be designed to shelter the population in the event of a nuclear attack, government officials say it’s only a precaution and they do not expect such an attack or nuclear outbreak (e.g. Chernobyl) to occur. Neither RT or the Russian government provided estimates for the cost of the facilities. A Popular Mechanics article that reviewed a number of different types of bunkers and building practices had varying prices depending on the type of shelter. Since the proposed Russian bunkers would hold roughly 1000 people each (based on the population count and other details), one could estimate that the lowest price point for a bunker this size, with basic necessities like bathrooms and reserve food for a day or two, may run in the area of around $100,000 – $200,000. This would put a conservative price tag for 5000 shelters anywhere from half a billion to a billion dollars. A significant investment, indeed.

So what about us?

Has the U.S. government constructed any bunkers for the survival of the general population in the United States?

Of course not.  In the event of a nuclear war, I guess they just expect pretty much all of us to die.

The Russians also recently finished work on a brand new national defense center in Moscow that contains extensive underground facilities

Russia is launching a new national defense facility, which is meant to monitor threats to national security in peacetime, but would take control of the entire country in case of war.


The new top-security, fortified facility in Moscow includes several large war rooms, a brand new supercomputer in the heart of a state-of-the-art data processing center, underground facilities, secret transport routes for emergency evacuation and a helicopter pad, which was deployed for the first time on Nov. 24 on the Moscow River. The Defense Ministry won’t disclose the price tag for the site, but it is estimated at the equivalent of several billion dollars.

In addition, the Russians have also been developing a new anti-ballistic missile system that is designed to keep U.S. nuclear missiles from getting to their targets in the first place.

The U.S. doesn’t have anything like the S-500 that is currently being developed by the Russians.  At the latest, it is scheduled to be deployed in 2017, but there are rumors that it is already starting to be deployed today.  The following comes from

The S-500 is not an upgrade of the S-400, but a new design. It uses a lot of new technology and is superior to the S-400. It was designed to intercept ballistic missiles. It is planned to have a range of 500-600 km and hit targets at altitudes as high as 40 km. Some sources claim that this system is capable of tracking 5-20 ballistic targets and intercepting up to 5-10 ballistic targets simultaneously. It can defeat ballistic missiles traveling at 5-7 kilometers per second. It has been reported that this air defense system can also target low orbital satellites. It is planned that the S-500 will shield Moscow and the regions around it. It will replace the current A-135 anti-ballistic missile system. The S-500 missiles will be used only against the most important targets, such as intercontinental ballistic missiles, AWACS and jamming aircraft.

Sadly, most Americans are not interested in this stuff at all.

These days, most Americans just assume that the Russians are “our friends” and that a war with Russia could never possibly happen.

What they don’t realize is that the Russian people see things very, very differently.  Today, 81 percent of Russians have a negative opinion of the United States.  Our interference in the conflict in Ukraine has made the Russian people very angry, and there are many over there that now believe that a shooting war with the United States is inevitable.

And this week things between the United States and Russia got even more tense.  Barack Obama has already announced that we will be sending “non-lethal” military aid to the Ukrainians, but now the U.S. House of Representatives has overwhelmingly passed a resolution that calls for Obama to send “lethal” military aid to the government in Kiev…

Yesterday, in a vote that largely slid under the radar, the House of Representatives passed a resolution urging Obama to send lethal aid to Ukraine, providing offensive, not just “defensive” weapons to the Ukraine army – the same insolvent, hyperinflating Ukraine which, with a Caa3/CC credit rating, last week started preparations to issue sovereign debt with a US guarantee, in essence making it a part of the United States (something the US previously did as a favor to Egypt before the Muslim Brotherhood puppet regime was swept from power by the local army).


The resolution passed with broad bipartisan support by a count of 348 to 48.


According to DW,  the measure urges Obama to provide Ukraine with “lethal defensive weapon systems” that would better enable Ukraine to defend its territory from “the unprovoked and continuing aggression of the Russian Federation.”


“Policy like this should not be partisan,” said House Democrat Eliot Engel, the lead sponsor of the resolution. “That is why we are rising today as Democrats and Republicans, really as Americans, to say enough is enough in Ukraine.”

If Obama does decide to send lethal military aid to the Ukrainians, the Russians are going to flip out.

Sadly, neither side seems very interested in peace at this point.

We just continue to take even more steps along the road toward World War III, and it is a war that the United States is completely and utterly unprepared for.

About half the world's oil production is moved by tankers on fixed maritime routes, according to Reuters. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs and thus, these checkpoints are crucial to global energy security. While Hormuz remains the largest chokepoint (and along with Bab el-Mandeb explains why Yemen matters so much), Malacca (as we noted previously) is quickly becoming another area of potential problems.


And while Yemen is key for The Strait of Hormuz...


With Bab el-Mandeb even more specifically problematic if Yemen tensions get too extreme...

Source: JPMorgan is China's growing presence near The Strait of Malacca that is perhaps most worrisome for the global energy order...


and here's why...


The Claims...


*  *  *

Yesterday we saw the tracers against the dark night sky, tonight we get the video of Saudi warplanes bombing various Houthi positions. All looks quite "decisive" to us...

Powerful explosions rocked the Houthi-held Sanaa on Thursday night as a Saudi-led coalition carried out air strikes against Shiite rebels in control of the Yemeni capital, an AFP correspondent reported.


Anti-aircraft fire erupted in response to what witnesses said were air strikes by the coalition forces against a camp at al-Istiqbal, on Sanaa's western entrance.

Via Al-Arabiya...

(note - musical accompaniment provided by Saudi Arabia, not Zero Hedge)

*  *  *

Here is the state of play in crude oil for now...


If there is one chart that most clearly captures the unsustainable US home price appreciation bubble, it is the following which was released overnight from RealtyTrac: it is based on an analysis of wage growth and home price appreciation during the U.S. housing recovery of the past two years and has found home price appreciation has outpaced wage growth in 76 percent of U.S. housing markets during that time period. The conclusion: home price appreciation nationwide has outpaced wage growth by a 13:1 ratio!


Some of the other RealtyTrac report's findings:

“Home prices in many housing markets across the country found a floor in 2012 and since then have rapidly appreciated, particularly in markets attracting institutional investors, international buyers or some other flavor of cash buyer not constrained by income as much as traditional buyers,” said Daren Blomquist, vice president at RealtyTrac. “Eventually, however, those traditional buyers will need to play a bigger role in the housing market for the recovery to maintain its momentum.

What goes up, unsustainably, must come down, or at least hold it growth until wage growth finally picks up.

“Those markets with the biggest disconnect between price growth and wage growth during the last two years are most likely to see plateauing home prices in 2015 until wages catch up,” Blomquist continued. “Meanwhile, markets where wage growth has outpaced home price appreciation during the last two years are poised to see at least steady growth in home prices in 2015 in most cases.”

The math is well known to frequent readers. Nationwide, median wages have increased 1.3 percent between the second quarter of 2012 –when home prices bottomed out and started rising again — and the second quarter of 2014. Meanwhile home prices have increased 17 percent in the two years ending in December 2014, outpacing wage growth by a 13:1 ratio.

Among the 184 metro areas analyzed, the average wage growth over the two years ending Q2 2014 was 3.7 percent while the average home price appreciation in the two years ending in December 2014 was 13.4 percent.

Where it the appreciation imbalance the biggest? Home price appreciation outpaced wage growth in 140 of the 184 metro areas (76 percent) with a combined population of 176 million. Metropolitan statistical areas with the highest ratio of price appreciation to wage growth included Merced, California (141:1), Memphis, Tennessee (99:1), Santa Cruz, California (94:1), Augusta, Georgia (78:1), and Palm Bay-Melbourne-Titusville, Florida (62:1).

Other metro areas where home price appreciation has outpaced wage growth by a wide margin during the housing recovery included Sacramento, California (17:1 ratio), Riverside-San Bernardino, California (15:1 ratio), Las Vegas, Nevada (14:1 ratio), and Detroit (12:1 ratio).

“As wage growth remains fairly flat across the Ohio markets, the effects of low available inventory continue to escalate prices, creating a negative effect on home affordability for many first time, and move up home buyers,” said Michael Mahon, executive vice president at HER Realtors, covering the Ohio markets of Cincinnati, Dayton and Columbus, the latter of which has seen home price appreciation outpace wage growth by a ratio of 9:1 during the housing recovery.  “While the time to purchase is now, for home buyers to take advantage of all time low interest rates, continued stress on home affordability and credit repair shall leave many missing this prime time opportunity of home ownership.”

Among the 140 markets where home price appreciation has outpaced wage growth during the housing recovery, 45 metro areas (32 percent) with a combined population of 63 million had a median home price in December that required more than 28 percent of the median income for monthly mortgage payments — unaffordable by traditional standards.

These 45 traditionally unaffordable markets with price appreciation outpacing wage growth included Los Angeles, San Francisco, San Jose and San Diego in California, Seattle, Portland, Boston and Denver.

“The good news in Seattle is that we have higher than average income growth. The bad news in Seattle is that homes are becoming increasingly less affordable, especially in the core areas near the city,” said OB Jacobi, president of Windermere Real Estate, covering the Seattle market. “While wages in Seattle are expected to continue rising at a healthy pace, so too are housing prices. And as long as buyer demand outpaces seller supply, it is unlikely that we will see any improvement in affordability in the foreseeable future.”

“Marketing homes in areas that have home ownership costs continually outpacing wage growth means that you run into more people leaving areas for their next move, up or down,” said Mark Hughes, chief operating officer at First Team Real Estate, covering the Southern California market. “The dynamics driving the affordability, or lack of affordability, have as much to do with the new global nature of real estate as much as they have to do with the speed of local wage acceleration. Southern California will remain increasingly unaffordable from within, but a hot commodity world-wide.”

It's not all doom and gloom for homeowners:  Wage growth outpaced home price appreciation in 44 of the 184 metro areas (24 percent) analyzed with a combined population of 51 million. Metropolitan statistical areas with the lowest ratio of home price appreciation to wage growth were Hagerstown-Martinsburg, Maryland-West Virginia, Wichita, Kansas, Des Moines, Iowa, Gulfport-Biloxi, Mississippi, and Harrisburg, Pennsylvania.

Other metro areas where wage growth outpaced home price appreciation during the housing recovery included New York-Northern New Jersey-Long Island, New Haven, Connecticut, Virginia Beach, Tulsa, Oklahoma, and Raleigh, North Carolina.


Of course, the biggest determinant of home price appreciation over the past 2 years has nothing to do with US consumers, or household formation, as confirmed by the collapse in first-time homebuyers or the unprecedented depression in new mortgage origination, and everything to do with what we first suggested is one of the main drivers of the US housing bubble - foreigners parking their illegally procured cash in the US and evading taxes, now that US housing, with the NAR's anti-money laundering exemption blessing, is the new normal's Swiss Bank Account. That and flipping homes from one "all-cash" buyer to another "all-cash" buyer in hopes of a quick capital appreciation and the constant presence of the proverbial dumb money.

Until it is made overhwlemingly costly for illegal offshore wealth to be parked in NYC triplexes, or home flipping is regulated out of existence, expect the housing bubble to continue rising to even more eyewatering highs.

Lost in translation?




Regular readers are by now well versed on the recent developments surrounding the launch of the China-led Asian Infrastructure Investment Bank, but for anyone needing a refresher, here is what it’s all about: 

...the China-led development bank essentially marks an epochal shift away from traditionally US-dominated multinational institutions like the IMF and the ADB. Meanwhile, it also represents an implicit attempt by the Chinese to usher in a kind of sino-Monroe Doctrine and solidify their regional — and, to a certain extent their international — ambitions. In a desperate attempt to undermine the effort and preserve what’s left of US hegemony, Washington aggressively lobbied its allies last year to refrain from supporting the effort. Then the UK decided to join calling the bank an “unrivaled opportunity.” That effectively opened the floodgates and in short order, a bevy of Western nations and close US allies suddenly reversed course and indicated they were likely to support the new institution.

Over the past week or two, the mainstream media have picked up on this narrative and repeated it ad naseum, making clear to anyone who’s picked up a newspaper in the last 14 days that the Bretton Woods era and US dollar hegemony are now squarely confined to the annals of history. While we think it’s certainly important for everyone to wake up to the fact that a tectonic shift is taking place among the world’s multinational institutions, we suspect that for China, the cat may have gotten a little too far out of the bag. You don’t, for instance, want to risk alienating the Western nations who have just recently thrown their support behind the venture by reinforcing the idea that the whole endeavor is nothing more than a $100 billion Chinese foreign policy instrument (especially when it is). To this end, The Global Times (a paper run by the state-controlled People’s Daily) is out with a story which purportedly describes China’s benign intentions and altruistic aspirations from the AIIB.

From The Global Times:

The establishment of the Asian Infrastructure Investment Bank (AIIB) has been depicted by a few overseas media outlets as if China is building its own version of the Bretton Woods system. 


The bank is not yet in operation, and it will take time for people to come to grips with its purpose. However, overblown hype from foreign media claiming that China is seeking financial hegemony could create preconceived notions for people who are not familiar with it…


Some foreign observers claim that the AIIB is the beginning of the Chinese yuan's hegemony. What they are actually trying to imply is that "China is another US."


This kind of statement is nonsensical, which uses historical experience to fool readers. It is divorced from the truth and shows no common sense and doesn't stand up to any scrutiny.


Through the Bretton Woods system, the US was able to wield supreme influence over its allies which had been severely battered during the war. China today is in a totally different position. 


Founding the AIIB is only a China-led initiative. Over 30 countries from Europe and Asia have so far applied to join, some of which even have territorial disputes or political divergences with China. They are not courting Beijing, or pushing yuan hegemony. What they are pursuing is the win-win principle of cooperation. 


The AIIB will not confront the WB or IMF, nor will it turn the current international monetary order upside down. The spirit of the AIIB is diversity and justice.


International relationships are entering an era of democracy that means pursuing hegemony is a wrong path whether one is an existing power or a rising power.  


China always maintains a low profile when it comes to showing the strength of our nation. Moreover, the Chinese media resists the hype over describing China as "number one" or a "superpower”...


The Bretton Woods system is a product of the old days. The new global trends created the AIIB and there is no room to look back to the old days of one currency's hegemony. 

So to summarize, China is not seeking to establish yuan hegemony and doesn’t seek to upset the existing balance of power in the world and in fact, doesn’t even like to be called “number one.” While some of this may be true, one needs to consider the source here as this certainly appears to be an attempt on China’s part to make all of the bank’s new Western recruits comfortable with the their decision to join in the face of Washington’s “you’ll be sorry” rhetoric. 

Of course actions, as they say, speak louder than words, and on that note, we’ll leave you with the following from Bloomberg:

China plans to push for yuan to take prominence in loans under the Asian Infrastructure Investment Bank and the Silk Road Fund, people familiar with the matter said.


China may encourage $100b AIIB and $40b Silk Road Fund to issue loans directly in yuan or set up yuan-denominated funds under the two institutions, according to the people, who ask not to be identified because deliberations are private.


People’s Bank of China didn’t immediately respond to faxed request for comment.

 *  *  *

De-dollarization is complete.

Submitted by Lance Roberts via STA Wealth Management,

Much of the commentary from the more liberal leaning media has continued to tout that the rise in asset markets over the last few years are clear evidence of economic prosperity in this country. However, is that really the case?

In order for rising asset prices to be reflective of overall economic prosperity, the "wealth" generated by those rising asset prices should impact a broad swath of the American populous. Let's take a look to see if that is the case.

"Mo Money" Or No Money

In September of last year, I discussed the Federal Reserve's 2013 Survey of household finances which showed a shocking decline in the median value of net worth of families across all age brackets.

While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall.


However, Shane Ferro from Business Insider posted a stunning piece on what has happened to American families as asset prices have surged higher. To wit:

"Nearly half of American households don't save any of their money.


If it isn't obvious, this has a broad range of implications. People who don't save won't have any buffer should the economy turn, and they lose their jobs. Longer term, people who don't save won't have the capacity to retire. It's not good."


What is clear is that rising asset prices, which have been induced by the Federal Reserve's monetary policy and suppression of interest rates, has indeed benefitted those that have assets to invest.

The findings are strikingly similar to the U.S. Federal Reserve survey from last year.

"'Savings are depleted for many households after the recession,' it found. Among those who had savings prior to 2008, 57% said they'd used up some or all of their savings in the Great Recession and its aftermath. What's more, only 39% of respondents reported having a 'rainy day' fund adequate to cover three months of expenses and only 48% of respondents said that they could not completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money."

In other words, the rich have gotten richer as rising asset prices have been a major benefit to stock-option based executives who have raked in billions. However, for the majority of the working class, it has remained primarily a struggle to survive much less actually save.

  401k Plans - Wall Street's Biggest Scam

Beginning in the 80's and 90's, Wall Street lobbied heavily to change the rules to allow companies to scrap pension plans in exchange for employee contribution plans known as 401k plans. Supposedly, this was to be a grand bargain for individuals to take control of their own financial futures.

This was a HUGE win for Wall Street as companies such as Vanguard, Fidelity and others gathered trillions of dollars in assets from company employees who contributed to those plans. It was also a win for companies which benefitted from the reduction in costly contributions required by pension plans which boosted net incomes and compensation to business owners and executives.

It all worked out great....right? Turns out, not so much for individuals.

According to a recent study, the results of shifting the responsibility of retirement savings, not to mention the risks of investing, to the individual has been grossly unsuccessful. To wit:

"$18,433 is the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute.


That's the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000, even as the proportion of companies offering alternatives like defined benefit pensions continues to drop.


Older workers do tend to have more savings. At Vanguard, for example, the median for savers aged 55 to 64 in 2013 was $76,381. But even at that level, millions of workers nearing retirement are on track to leave the workforce with savings that do not even approach what they will need for health care, let alone daily living. Not surprisingly, retirement is now Americans' top financial worry, according to a recent Gallup poll.


But shifting the responsibility for growing retirement income from employers to individuals has proved problematic for many American workers, particularly in the face of wage stagnation and a lack of investment expertise. For them, the grand 401(k) experiment has been a failure.


"'In America, when we had disability and defined benefit plans, you actually had an equality of retirement period. Now the rich can retire and workers have to work until they die," said Teresa Ghilarducci, a labor economist at the New School for Social Research.'"

Of course, for those in the top-10% of wage earners - "it's all good."


  The Problem For The Bottom 80%

One of the recent diatribes by the media was that falling gasoline prices would spur consumption. As I have repeatedly discussed, this is far from the truth as shifting spending from one area of the economy to another does NOT increase consumption but is rather like "rearranging deck chairs on the Titanic."

The only thing that ultimately increases consumption, or savings, is an increase in incomes. Unfortunately, for roughly 80% of American's, wage growth, and actual employment, have been an elusive reality.

When it comes to actual employment, it is hard to rationalize the mainstream media's obsession with the U-3 unemployment rate. Particularly, when it is clearly being obfuscated by the shrinkage of the labor force. As I wrote in August of 2013:

"While the Fed could certainly claim victory in achieving their 'full employment' target; the economic war will be have been soundly lost."

The Federal Reserve did ultimately achieve their target unemployment rate. However, as I have shown previously, when it comes to the primary 16-54 age group that should be working, it is hard to suggest that almost 95% of working age American's are gainfully employed.


Even more critical is the fact that for roughly 80% of American's that are working, wage growth has been non-existent. Tyler Durden at ZeroHedge wrote:

"The important math: production and non-supervisory employees, those not in leadership positions, represent 80% of the employed labor force. This is important when looking at the next chart which show the annual increases in hourly earnings just for production and nonsupervisory employees.

It is as this point that we ask that all economists avert their eyes, because it gets ugly:




As the BLS reports, not only is the annual wage growth of 80% of the work force not growing, but it is in fact collapsing to the lowest levels since the Lehman crisis!


But if the wages of the non-working supervisory 80% of the labor population are tumbling while all wages are flat that must mean that the wages of America's supervisors, aka "bosses" are...




The chart below shows what the implied annual change in supervisor hourly earnings has been since the start of the second Great Depression. Note the recent differences with the chart immediately above.




And there, ladies and gentlemen, is your soaring wage growth: all of it going straight into the pockets of those lucky 20% of America's workers who are there to give orders, to wear business suits, and to sound important.


Yes - wages are growing, for those who least need wage growth, the 'people in charge.'"

Despite many claims that the "economy" has recovered from the financial crisis, as evidenced by a surging stock market, a closer look at the majority of Americans suggests otherwise. The implications are important as the burdens on social welfare continue to swell, and the ability to pay for those entitlements becomes more questionable.

They were trying to put in a bottom—–again! The sell-off earlier this week amounted to the sixth sizeable “dip” since November 20—-so the market’s ingrained reflex was back at work all afternoon, trying to scoop up the “bargains”. But the roundtrip to the flat-line shown below is not a classic wall of worry and its not a “bottom” that’s being put in. This market is dumber than…


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